Queensland’s credit outlook revised to negative

The Bligh government has stood by its ambitious economic growth forecasts for 2011-12, despite international ratings agency Fitch yesterday revising Queensland’s credit outlook from stable to negative.

The decision to put Queensland on notice about a potential downgrade from its AA+ rating within the next two years will cast more doubts about Labor’s economic credentials before the state election due by early next year.

It will also help the Liberal National Party highlight Queensland’s spiralling debt, which is due to reach $85 billion by 2014-15, despite the unpopular $14 billion asset sales program.

Fitch Ratings said Queensland’s sluggish growth, especially in non-mining sectors, and high debt were the main cause for the change.

It said a downgrade was likely if Queensland was “unable to recover sufficiently positive operating margins and limit the growth of its debt over the next 24 months".

It also said Queensland – which lost its AAA credit rating in 2009 – was vulnerable to a deterioration in global economic conditions.

But Treasurer
Andrew Fraser
yesterday questioned Fitch Rating’s decision, saying it had not taken into consideration an estimated 27 per cent surge in business investment and a pipeline of multi-billion dollar resource projects coming on line in Central Queensland. He also noted two other ratings agencies, Standard & Poor’s and Moody’s Investor Services – who also have Queensland on AA+ credit rating – had the state on a stable credit outlook.

Mr Fraser told The Australian Financial Review Fitch Ratings has a very different view of the Queensland economy than others, “up to and including the Governor of the Reserve Bank". “The need to deal with the surge in investment that’s already locked and loaded is the opposite end of what Fitch are advancing," Mr Fraser said.

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Mr Fraser and Premier
Anna Bligh
also appeared to question the credibility of Fitch Ratings, saying it was “viewing the world from the perspective of the economic outlook in the European Union".

But director of Fitch’s international public finance team Andrea Jaehne stood by the assessment. She said it had taken all aspects of Queensland’s finances, including business investment figures, into consideration when deciding to downgrade the state’s outlook from stable to negative.

“The reason for the downgrading the outlook is that we believe on a AA+ level it does not have a lot of financial flexibility," Ms Jaehne said.

“So if we see a deterioration in the economic environment or any of its major export markets, then it will have an impact on budgetary performance."

Ms Jaehne said it believed Queensland’s predicted growth forecast of5 per cent – after no growth in 2010-11, the lowest level since 1982-83 – was overly optimistic. “Our forecasts are more cautious."

Moody’s and Standard & Poor’s – who normally update their forecasts after state budgets and mid-year updates, said they had no plans to revise their credit outlooks.

Opposition treasury spokesman Tim Nicholls said it was unfair for the Bligh government to question the credibility of Fitch Ratings.

“It’s a case of trying to shoot the messenger rather than paying attention to the wake-up call about debt levels continuing to rise and the growth in general government spending becoming unsustainable,"Mr Nicholls said.

“This reinforces that Labor has mismanaged the economy and despite all the pain of the asset sales, Queensland’s state finances are in worse shape than they’ve ever been."